If you’re new to the world of freelancing, you might wonder what to charge for your hourly rate. It’s a tough question. Perhaps for the first time in your life, you need to determine just how much your time is really worth.
But working out your hourly rate for freelancing doesn’t have to be so hard. You just need to do a bit of research and spend a bit of time working a few things out. And above all, you need to understand your value as a professional.
Is My Hourly Rate Too Low or Too High?
In the early days of your freelancing career, you might be tempted to charge as little as possible for your hourly rate. How else are you going to attract new clients if you haven’t yet had a chance to build up a reputation and a portfolio?
But you should never sell yourself short like this. If you set your hourly rate too low, you’ll have to work longer and harder to earn any sort of living wage. But also, think of the sort of message you’re sending by setting your rates too low. You’re essentially saying that the only reason potential clients should work with you is because you’re cheaper than your competitors.
This is an unhealthy mindset. Your clients should want to work with you because you’re good at what you do! And you’re perfectly in your rights to charge at least the going rate. After all, clients are paying you for your time, your skills, your expertise, and your insight. You worked hard to develop these abilities. So why shouldn’t clients pay for it?
You might think that, if you don’t set your rates low, then potential clients will always overlook you for someone who charges less. There is some truth to this. There will always be freelancers who charge less than you, and there will always be clients who prioritise price above all else. But honestly, these aren’t the sort of clients you want to work with anyway. For fruitful long-term success, you should aim to work with people who recognise your value.
But with all this being said, obviously you shouldn’t set your rates too high either, or you’ll never get any work!
So what is too low? And what is too high?
How to Work Out an Hourly Rate as a Freelancer
To work out your hourly rate as a freelancer, it’s good to have a ballpark figure to work with. Find out what the average hourly rate is for people who do similar work to you. Bear in mind that the market is constantly changing, so make sure you get the most up-to-date figures possible.
Understanding the average hourly rate is a good starting point for working out your own hourly rate. It’ll give you a better idea of what’s “too low” and what’s “too high” for people like you. It will also give you some bargaining power when negotiating with potential clients. If they ever claim that you’re asking too much, you can simply point them towards the going rate!
Payscale is an excellent online resource that’ll show you the average hourly rate for people with your skillset. Handily, for each role, it demonstrates what sort of skills might enable you to charge more than your competitors. For example, here’s their most up-to-date report on the average hourly rate for freelance writers in the UK.
How to Work Out Your Freelancing Overheads
If you work for an employer, your salary will take into account many things, including insurance, healthcare, equipment, pension contributions, and so on. But if you’re a freelancer, you’ll have to take care of all of these things yourself. Your hourly rate should reflect this.
So work out how much you’ll need each year to cover:
- Insurance
- Equipment
- Training and development
- Software subscriptions and other IT requirements
- Web hosting and site maintenance
- Transport
- Marketing
- Other overheads – including office space rental and associated expenses
Your Total Ideal Annual Income
Once you’ve calculated all your overheads, you should have a figure to work with. Don’t be alarmed if this figure seems excessive! If you’ve already researched the going rate for people in your industry, then you should have another figure to work with. Let’s call this your ideal annual income.
To work out an hourly freelance rate that works for you, first add the total annual cost of your overheads to your ideal annual income. Let’s call this figure your total ideal annual income.
Keep this figure in mind.
How to Work Out Your Total Billable Hours Per Year
Next, you need to work out just how many billable hours you’re likely to work each year. This might differ depending on what you do. But once again, it’s helpful to have some averages in mind.
Think of a full working day as eight hours. Accounting for weekdays and public holidays, there are usually 251 working days in a year, or 252 in a leap year. That means that, each year, the average UK employee might work 2,008 billable hours.
But most workers don’t work 251 days a year. So let’s make some deductions:
- Annual holidays – All UK workers must get at least 28 days’ paid annual leave a year. This amounts to 224 billable hours.
- Sick Days – The average UK worker takes 4.4 sick days a year. To make things simpler, let’s round that up to five. This amounts to 40 billable hours.
So with these deductions in mind, the average UK worker will work 1,744 billable hours in a year.
Before we go any further, remember that you won’t be spending 100% of your time as a freelancer on value-adding tasks. You’ll also spend time on marketing, admin, accounts, and so on. Again, to keep things simple, let’s say you’ll spend 25% of your time on these non-billable activities.
Deduct this from our total, and we’re looking at 1,308 billable hours each year.
Formula to Work Out Your Hourly Rate as a Freelancer
So if you want to work out your hourly rate as a freelancer, just divide your total ideal annual income by your total number of annual billable hours.
So if you worked out your total ideal annual income to be £40,000, your hourly rate as a freelancer would be:
£40,000 / 1,308 = £30.58 an hour.
Not bad!
Obviously, all of this will differ depending on the nature of your work, and your overheads. But many new freelancers struggle to determine their hourly rate, so hopefully this guide has made things a little easier.
Other Things You’ll Need as a Freelancer
We have a detailed guide to becoming a freelancer which includes the various practical steps you’ll need to take if you want to start working as a freelancer. Our guide contains tips on registering your business, choosing a name to trade under, setting up a working space, and more.
Above, we listed insurance as an annual overhead you’ll need to consider when calculating your hourly rate as a freelancer. This is because no freelancer should be without some form of insurance cover. For freelancers, insurance acts as an essential safety net. It ensures that, no matter what happens, you’ll be able to continue trading, and to bounce back from any crisis or setback.
At Tapoly, we specialise in providing comprehensive and affordable insurance for freelancers. Our flexible tailored cover starts at just 50p a day, and you can get a free quote online in minutes. Head here for more information.